LONDON (ICIS)--Stockpiling of chemicals in the
UK continues as clarity on the model for Brexit
remains as elusive as ever, while producers
from the rest of Europe are eyeing their
portfolios in light of the potential for a UK
Reach regulatory system.

- Brexit date likely to be extended,
but little clarity on when

- UK Reach could cause European sellers
to stop exports of some products

The need to ensure
stability of supply along chains spanning the
UK and mainland Europe, despite any disruption
that may accompany the UK’s projected 29 March
departure from the EU – an outcome that seems
less likely after votes in parliament this week
– means that storage space is at a premium,
particularly specialist warehouse space.

“We are just trying to keep our tanks as full
as possible and we are keeping additional stock
– we are bringing forward what we usually stock
for the summer when we close down,” said a UK
plasticizers buyer, who warned that UK
manufacturing would be “decimated” by a no-deal
Brexit.

“Stockpiling is already happening because some
supply chains are very long, [encompassing]
China, India,” said Peter Newport, chief of
UK's chemicals distribution trade group the
Chemical Business Association (CBA).

Storage for hazardous material is at a
particular premium as capacity in certified
facilities is being tested by the need to build
up stocks to hedge against the possibility of
several months of disruption that could follow
the UK’s departure from the EU.

“Chemical storage capacity is becoming
expensive and availability is restricted by
regulatory limitations - COMAH [Control of
Major Hazards] and Land Use planning,” Newport
added, noting that the CBA had requested
clarity from the government on COMAH storage,
with repeated responses stating only that the
government is working on contingency planning.

CONFUSION REIGNS IN UK
PARLIAMENT
The UK's Prime Minister Theresa May’s proposed
Brexit deal, which lays out in broad strokes
the terms that a full post-divorce trading
relationship with the EU will be negotiated
under, suffered its latest defeat in the
House of Commons – the UK's lower
chamber – this week.

The second rejection of the deal, the product
of a two-year negotiation, was followed by
several other votes on the path that Brexit
will take, none of which served to shed much
light for business about the ultimate fate of
the UK.

UK lawmakers voted to rule
out a no-deal Brexit, which would see the
country potentially deal with its former
partner countries under World Trade
Organisation (WTO) rules, in two votes on 13
March.

While those votes set out parliamentary
opposition to a no-deal breakaway, an outcome
described by industry groups as catastrophic
for the chemicals sector, they have no ultimate
impact on the trajectory of departure as a hard
Brexit remains the default in the absence of an
agreement.

UK Members of Parliament also voted
for an extension on the 29 March departure
date, although this is at the discretion of the
other 27 EU member countries, and is
complicated further by the upcoming European
parliamentary elections, planned for May.

Some EU member state leaders have advocated
that an extension either be restricted to a few
weeks, or be long enough for substantive change
to the current negotiations to be achieved,
potentially through a UK general election.

The German Chancellor Angela Merkel would be in
favour of an extension to early June, according
to analysts, before new Members of the European
Parliament (MEPs) take their seats for the
first time, raising the possibility that the UK
will be forced to run European elections for
ministers that never end up taking the seats
they were elected for.

NEXT STEPS
There is a possibility that May will run a
third vote on her Brexit deal before making a
request to extend the 29 March deadline, in the
hope that by convincing hardline Brexit
supporters that the current text, which grants
powers to curb immigration and represents a
full departure from the bloc, is be the
most favourable outcome they can hope for.

In the meantime, industry players are forced to
operate with no idea when or if the UK will
leave the EU, under what terms, and what steps
it will be necessary to take to continue
trading between the two regions.

Stock built up present may be consumed during
the departure delay, and laid in again in the
run-up to any future leave date.

Despite the confusion, some players see the
formation of a decisive stance against a hard
Brexit as a promising sign.

"Brexit risk is fading away, day after day,
especially this week,” said a European styrene
butadiene rubber (SBR) producer, who reported
receiving requests from UK customers to build
up stock before the end of March.
“What we've seen in other sectors is
strong demand in February, and the same in
March … in relation to Brexit,” said another
market source.

“We are just waiting, tried to stock up.”

Other players in the sector noted that the lack
of clarity on the post-trading relationship,
and being only a fortnight ahead of the
proposed departure date, had led to a limited
concrete preparations among some market
participants as a result of the believe that it
may not ultimately come to pass.

“People are not preparing for Brexit, no-one
believes in it but that’s no surprise,” said a
market source.

“Orders are picking up in the second quarter,
because of Brexit customers have pre-ordered
just in case,” it added.

Another source in the European petrochemicals
industry said that its UK clients "aren't
panicking” and claimed that the stockpiling
worries were over-stated.

“Of course, there are some adjustments to do,
it will take three to six months, there will be
a grey period," the source said.

"It is just a matter of paying a tariff, no big
deal.”

UK REACH
Even if May’s deal was to finally be agreed
next week, it remains to be seen whether that
would allow regulatory harmony with the EU for
the chemicals sector.

The UK government has expressed of hopes of
associate membership with the European
Chemicals Agency (ECHA) post-Brexit, but at
present such a category does not exist.

In the event of the UK being classified a third
country for ECHA – the agency’s default
position for now – the government has said that
it will develop a matching UK Reach system.

This would maintain regulatory alignment with
the EU, but require UK players and EU entities
selling into the UK market to re-register those
products, a potentially expensive process that
raises questions about whether all of the
16,000 chemicals the UK consumes but does not
produce will continue to be sold there.

Matthias Zachert, CEO of Germany-based producer
LANXESS, told ICIS this week that the company
would stop selling certain materials if the
burden of registration was too high.

“Some products which are very small for us, if
the re-registration efforts are economically
not reasonable, we would just stop selling
them,” said Zachert.

In the meantime, UK consumers continue to watch
the news coming out of Westminster, and make
sure inventory levels are high.

“Most British customers have over ordered this
month because they want to get in before the
cut-off date,” said a European expandable
polystyrene (EPS) seller.

“[They’re now] sitting on too much stock, [we]
could see not much business coming if Brexit
doesn’t happen [this month]. The only people
that are winning are those [renting] storage …
but if Brexit looks likely again in two months,
[buyers] will have to overstock again,” it
added.

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